| |
| |
 |
 |
 |
Daily Report |
|
Research Dossiers |
|
Hall of Fame |
|
Bookstore |
|
Events |
|
Links |
|
Have Your Say |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
Browse by CategoryHome » Category List » AUDIENCE: Some knowledge of finance
As markets fall, stock lending keeps on truckin’15 July 2008
In general, stocks are lent out on an ad hoc basis, allowing the lender (or more accurately, the lender’s agent, the prime broker) to set the “borrow fee” in a relative vacuum rather than letting the market dictate it. The resulting borrow fee is still loosely based on the supply and demand for the borrow. So if everyone wants to short a stock, then the demand will increase and the fee will rise. The possibility of a looming “shortage of shorts” has been bouncing around for some (see, for example, our posting “A Shortage of Shorts?” from November 2007). You’d think that a demand-driven increase in borrow fee would be accompanied by a commensurate drop in the price of the stock itself. After all, if everyone hates the company all of sudden shouldn’t the price fall? And as the price falls, shouldn’t some of the froth come out of the borrow demand (as marginal investors sense they have missed their chance to board the train)? Not so. We reported some data from Goldman Sachs last fall that suggested the smaller supply of Russell 2000 stocks had led to an increase in borrow fees during 2007. But many experts felt at that time that the huge supply of lendable large cap stocks would keep borrow costs under control. But now we’re starting to see evidence that even large cap borrows might actually be in short supply. The Independent reported yesterday that the average borrow fee for a blue-chip security has doubled in the past 10 months on both sides of the Atlantic. But it gets worse. The paper says the fee to borrow a mid-cap (FTSE 250) name has tripled during the same time period. How low will markets have to go to remove some of the enthusiasm for shorting (and with it, some of the froth from borrow demand)? That’s anyone’s guess. But for the time being, the pension funds and other long-term investors who lend out their stock are helping the prime brokerages shovel the cash into the truck. Addendum: While the Independent says there is “no market” for shorting, there are some emerging business models that may eventually bring some sanity to the borrow market. One is the recently-launched Lendex that allows lenders to side-step prime brokerages and list their lendable stocks themselves.
Comments »Alternative investing to be taken off endangered species list13 July 2008
Much as an animal is removed from the endangered species list when its numbers multiply, the report concludes that alternative investments may soon out-grow that moniker. Says the summary:
Notably, this year’s survey included questions on portable alpha and 130/30 strategies (appropriately, we might add, discussed in the same breath). What is probably most striking about these findings is that the popularity of alternative investments is pegged to grow over the next 3 years despite market mayhem (that has led to the worst first half for hedge funds since 1990). As the report points out, some of this increased demand is a result of market mayhem itself.
The report goes on to say that over 50% of respondents said they planned to increase hedge fund allocations in the next three years while only 7% said they would decrease allocations. About a quarter of respondents said they were currently using 130/30 strategies. That’s pretty high when compared to other recent surveys on the topic (see related posting). In the clearest sign yet of the ”next big thing”, JP Morgan places “green investing” on the chart (below) with portable alpha and its successor 130/30. (Note the number of respondents in this asset class is set to nearly double over the next 3 years) Who’s driving the green express? Public pension plans. Their reputation for more innovative strategies (such as portable alpha) seems to be conspiring with their slightly more social mandates to make this category of investors particularly predisposed to green investing.
Finally, on the topic of fees, the report observes:
This report is timely because it reminds us that, despite some inevitable performance-chasing, there are fundamental trends driving the move to alternative investments. So fundamental it seems, that alternatives may soon cease to be alternative at all.
Comments »A Note on Hedge Fund Fees: the Best is Yet to Come9 July 2008Angelo Calvello has been around the alpha-centric investing world longer than almost anyone. In fact according to our research, he actually coined the term “alpha-centric” investing. In a guest posting today, he applies this thinking to hedge fund fees. And what he concludes will surely surprise many.
I recently attended a conference on 130/30 strategies. The discussion eventually and inevitably drifted to the well worn but poorly understood topic of hedge fund fees and more specifically the inevitable compression of those charges. It is a debate founded on the belief that hedge fund fees are simply too high, although it is not clear what yardstick is being used to support this conclusions. Hedge fund fees could be compared to those charged by traditional long-only managers, but this would assume that fees charged for ‘active’ long only management fairly represent the value added by these strategies. This, of course, is questionable.
Comments »Researchers: If index funds are a commodity, why are their fees so divergent?2 July 2008
Although not directly examined by that particular paper, one category that makes no denials about its lack of active management is the S&P Index Mutual Fund category. These (almost) purely passive funds are the subject of another paper by the same authors available here. In “Institutional S&P 500 Index Mutual Funds as Financial Commodities: Fact or Fiction?” John Haslem, Kent Baker and David Smith examine whether index funds are really are all the same and whether they are truly “commodities”. They find a wide variation in the fees (and therefore the performance) of S&P index funds. This is counter-intuitive given their common Investment strategy, but even more counterintuitive when one considers that institutional investors should be less likely than retail investors to pay unwarranted fees.
Comments »Sweden’s AP7 pension fund reports on progress of alpha/beta retooling30 June 2008
A great example of an organization that realizes the holistic implications of alpha/beta separation is Sweden’s AP7, one of the country’s many so-called “buffer funds” designed to fund the retirements of its citizens. Regular readers may recall AP7 and its forward-thinking CIO Richard Grottheim. As we reported in January, AP7 has recently awarded what it calls “pure alpha briefs” that are essentially notional overlays applied to the fund’s passive portfolio. A few weeks ago, Grottheim and colleagues including one from the Stockholm School of Economics, revealed how AP7 is set up to undertake this kind of innovation in a new white paper. In this paper, Grottheim and friends propose an org. structure that they say shows “not only significant improvement in portfolio performance, but also a more transparent and cost efficient portfolio structure.”
Comments »Alternative Viewpoints: Commodities not about “buy and hold”29 June 2008With so much interest in commodities, we thought this might be a good time to revisit the rationale for so-called “managed futures” funds. But as Keith Black, CAIA, of consultant Ennis Knupp + Associates says, commodity investing is about a lot more than buying and holding commodities in hopes that the Chinese continue to buy new cars. The Case for Commodities
Over the last several years, institutional investors have more than doubled their allocation (to over $200 billion), to financial products whose returns are linked to those of commodity indices. Commodities may be attractive due to: the low correlation between their returns and those of other asset classes, the high correlation of commodities returns with unexpected inflation, and the rising demand for commodities from fast-growing emerging markets countries, such as China and India. In fact, when you look at the performance of these commodity indices during the best and worst quarters for the Wilshire 5000 (and quintiles in between), you can see that they have produced modestly positive returns in almost all quintiles. In fact, the correlation between commodity indices and other major asset classes is generally below 0.2.
Commodity Beta via Equities
Comments »Virtual private equity a step closer to reality23 June 2008
Of course, you could always short comparable public equities (or even an index) against a long position in private equity. In fact, given the high correlation between private equity and public equity, that might not be a bad idea. There has been some research showing that a leveraged public equity position could actually trump private equity on a risk adjusted basis (see related posting). But insofar as private equity has its own return characteristics that are uncorrelated with public equity beta, it can’t truly be hedged. This may be changing soon. State Street is reportedly working on a “private equity replication” model that will complement its existing hedge fund replication model (see recent posting on that one). Eric Brandhorst, head of the research and structured products group at SSgA told Thomson last week:
Comments »Lending stock to yourself: nifty idea, but effectively just active long-only management?17 June 2008
The firm (”Enhanced Index Products Company” or “EIP”) was the subject earlier this week of a Reuters article that said the firm “is looking to triple its assets through a rare marriage of passive and alternative investing, creating market tracking index funds it can use to source stock for complex trades.” Essentially, EIP uses its much larger index funds as a source for the stock borrow required by the relatively puny long/short fund - a strategy to short-selling that the firm says is “ideal solution for markets where hedge funds can’t easily or cheaply borrow stock they need for their often sophisticated trading strategies”.
Comments »French fries active management16 June 2008
Immediate benefits of active management Institutions have increased their allocation to passive investing significantly over the past 20 years, prompting Advisor Perspectives to wonder if institutions wising up to high active management fees. Interestingly, French points to increasing institutional hedge fund allocations as evidence that they are not, in fact, becoming more passive after all:
Comments »Thomas Friedman on alpha/beta separation2 June 2008
Apparently, Thomas Friedman’s seminal book “The World is Flat” has a lot to say about the current state of asset management. Writes Rabovsky:
Comments »How much would you pay for a free (McAlpha Meal) lunch?20 May 2008Imagine that financial markets were a McDonald’s restaurant. Now imagine that the Golden Arches was running a promotion on its $5 “McAlpha” sandwich meal deal. The sandwich, along with fries and a Coke was free while supplies last. But there’s a catch. As stocks of this tasty free lunch dwindle, you will be able to bid up the price to get your hands on the remaining supply. Of course, you could always just pay the $5 and get the meal at regular price, but you’d rather save a few bucks. How much are you willing to pay? You’d probably pay up to $4.99 for this free lunch. While most investors won’t agree to 99% performance fees, they face the same type of decision when buying pure alpha (assuming, for a moment that “pure alpha” exists in the form of a fund). The bottom line is that “pure alpha” is a free lunch and is therefore worth paying for. That’s essentially what Swedish pension plan AP2 (sister fund of AP7 - see posting above) told a meeting of investors in Stockholm today. According to IPE.com’s continuing coverage of this event, the plan’s head Tomas Franzen said that alpha was “in short supply, [and therefore] it should be very expensive”. He continues:
Apparently sister fund AP7 is in full agreement.
Comments »Research says funds of funds not just “multi-manager funds with extra fees”13 May 2008
There are some in the hedge fund industry that look at the fees charged by funds of hedge funds as the equivalent to Puddy’s “optional overcharge“. However, a new study by one fund of funds supplier aims to dispel this notion once and for all. (Says Puddy: “Yeah. That’s right.”) As hedge funds began to ride a wave of interest around the turn of the century, there seemed to emerge a general consensus among those new to the asset class that funds of funds were the most appropriate way to invest. The argument made a lot of intuitive sense as the idiosyncratic risk posed by hedge funds could be ameliorated through diversification. And so the fund of funds became a dominant species in Hedgistan. But as we reported last week, there now seems to be a subtle shift back to single-strategy hedge funds. In fact, discussion about the potential weaknesses of funds of funds (fees, illiquidity of underlying funds and a lack of transparency into the underlying funds etc.) began a few years ago with the rise of the multi-strategy fund.
Comments »Alpha-centric investing described as a “seismic shift”9 May 2008
Now the landscape is changing. Or perhaps more accurately, investors are now expressing a desire to try their hand at portfolio construction using basic ingredients such as cash, beta, and alpha. This FT article (”Equity fund outflows bring need to adapt“) is a must read for anyone who thinks we’re nuts. The newspaper describes the changes facing the asset management industry as nothing less than a “seismic shift”. Kevin Parker, the head of Deutsche Bank’s $800 billion money management business tells the FT:
The FT also cites Jim McCaughan, CEO of Principal Financial Group as an advocate of alpha-centric thinking:
Comments »After launching 130/30 index, S&P says best yardstick is actually a long-only index29 April 2008
We were skeptical - noting that 130/30 amounted to simply leveraging the alpha potential of a strategy and was not really a strategy on its own (see posting). But we didn’t confine our skepticism to S&P. We also raised questions about the approach taken by Credit Suisse (see posting). We reasoned that since both indices were based on proprietary models, their performance was entirely contingent on the performance of each company’s underlying investment decisions. While S&P stopped short of saying its index was “representative” of 130/30 funds, a published index like this is obviously meant to be used as some kind of benchmark for 130/30 managers. But now another S&P report says the best benchmark for 130/30 managers is actually an appropriate long-only index…
Comments »The new face of 130/30?27 April 2008
While P&I describes this growth as “drastically slower” than last year, the numbers are still relatively small (53 managers), so it’s tough to draw any definite conclusions from these numbers. But we were were struck by what P&I said next: “…with most asset gains picked up by fundamental managers…” While fundamental strategies are gaining, quants still continue to dominate 130/30-land. As we’ve suggested before, it’s difficult to disentangle the poor performance of quant strategies in general from the performance of 130/30 as an investment approach. A rise or fall in 130/30 assets says more about managers’ view of the potential returns from beta, their own skill-level, their clients’ demands and their own particular business model than it does about the merits of short extensions per se. As a half-way point between long-only and market neutral funds, short extensions are simply an more aggresive form of active management, not an exotic new approach to investing.
Comments »Pensions warned on hedge funds (as they lose billions on long-only funds)22 April 2008
It’s certainly not unlikely that some pension fund somewhere will invest in a hedge fund or structured product that could lose 20% in the future. Although with overall hedge fund allocations in the low single digits for most investors, even that loss would only put only a small dent in returns. But apparently pension funds have become quite adept at losing it on their own - without the help of such forecast hedge fund drawdowns. A Northern Trust study released today concludes US pension funds are down due to their long-only equity portfolios. According to the firm’s press release:
Comments »Weekly Newsreel - All the hedge fund regulation that’s fit to print20 April 2008
Like the bill in the 1970’s “Schoolhouse Rock” TV segments, we’re all going to need a lot of “patience and courage” since it looks like the never-ending debate over hedge fund regulation isn’t going away any time soon. Here’s the news from last week… Phil Goldstein, the man who has taken on government officials on everything from hedge fund registration, 13F filings, and hedge fund advertising (see related posting), is reportedly championing a new industry advocacy group, tentatively called the “Rational Regulatory Policy Institute”. It sounds like the recommendations from the President’s Working Group (PWG) may not be enough to satisfy skeptics like Soros…Apparently, we weren’t the only ones to note the excessive use of the word “should” in the recent hedge fund report from the President’s Working Group (see posting). According to Reuters, Connecticut Attorney General Richard Blumenthal said the PWG plan “is one small step when giant strides are needed…The Treasury Department’s proposals for greater transparency and risk disclosure must be mandatory or they are meaningless.”
Comments »Google, efficient markets and box lunches with Bill Sharpe9 April 2008
This week, it contains an interesting piece by a fee-only portfolio manager that recounts the story of how the founders of Google educated their soon-to-be rich pre-IPO employees on how to stay rich post IPO. But while the story is presented as an endorsement of efficient markets, it may actually raise as many questions as it answers about the battle between active and passive management. Says the article:
Comments »Institutional alpha expectations remain (relatively) benign despite hype8 April 2008Information is freer flowing than ever. As a result, gaining an information advantage – the foundation of alpha generation – is becoming notoriously difficult. Despite what the media says about institutions seeking fantastic returns from alpha, most institutions are painfully aware of how hard it is to beat the market over the long term (i.e. to produce true alpha). Far from being dreamers who have fallen under the spell of money managers (as some have accused them), institutions remain remarkably pragmatic. A recent survey by consultancy Greenwich Associates hits the point home. The firm surveyed 583 institutions and found that the average expectation for alpha was actually a paltry 1.2% per annum. As the chart below from the report shows, small public pension plans have the most optimistic view of their manager’s skill-level. Conversely, small private pension funds have the least rosy view of their managers’ ability to deliver alpha (chart beloe shows annual alpha expectations in basis points).
Comments »Skeptics to hedge fund managers: Your alpha has been faked!3 April 2008
Now Wharton’s Dean Foster and Peyton Young of Oxford University and the Brookings Institution have added to the manager-as-scammer literature with a new paper entitled “The Hedge Fund Game: Incentives, Excess Returns and Piggybacking“. In it, they decry the proliferation of “fake alpha” (e.g. selling options and using the wrong benchmark to calculate alpha). The paper was published in January, but didn’t start making serious waves until mid-March when Martin Wolf, Chief Economics Commentator at the Financial Times wrote a column about it. Wolf points out the asymmetry inherent in any type of incentive fee and holds up the Foster/Peyton paper as a “beautiful” example of how incentive fees can be gamed. He says that such a structure bears a resemblance to the used car industry. Like the used car industry, he says the hedge fund industry “is bound to attract the unscrupulous and unskilled.” [Ed: We’re reminded of the famous Forbes cover story on hedge funds in May 2004 ”The Sleaziest Show on Earth“]
Comments »New Study: No hedge fund bubble…but a potentially serious capacity constraint30 March 2008
This is kind of ironic given that the industry seems to obsess over the “non-normality” of hedge fund returns. While fund and sub-strategy returns may be non-normal, there often seems to be an implicit assumption that alphas follow a bell curve. Thus, when hedge funds underperform, we assume that all hedge funds underperform - that the bell curve simply shifted to the left. But Zhaodong Zhong of Penn State University wondered if the averages hide a more complex explanation. His new study examines the performance of individual hedge funds to determine if average hedge fund alpha has fallen a) due to more unskilled managers (the “hedge fund bubble” hypothesis) or due to less superstars (the “capacity constraint” hypothesis). (Hat tip to blogger Paul Kedrosky for bringing this paper to our attention).
Comments »Portable alpha demoted to “low opportunity” in new survey of consultants25 March 2008Regular readers will remember that in 2007, portable alpha and 130/30 were deemed to be “up and coming” by management consultancy Casey Quirk & Associates (see related posting). The firm surveyed 49 North American investment consulting firms and found that portable alpha, liability-driven investing and 130/30 “may not represent a search focus, but see rising interest in conducting search activity.” Casey Quirk just released the results of its 2008 survey. And this new edition concludes that 130/30 and LDI remain “up and coming”, but portable alpha has been told to clear out its desk and move to “low opportunity” with commodities and fixed income. (”Low opportunity” is defined by the report as any asset class “faced with declining interest and little focus from the consultants in 2008.”) Here is how Casey Quirk saw the world back in March 2007…
Comments »Start your alpha engines, “the race is on”23 March 2008
Hedge Funds “outperformed by a very handy margin” Of course, this convergence presupposes that these alternative asset classes actually represent something of value. And after racking up volatile results over the past 6 months, hedge funds, for one, are raising some eyebrows. Still, Merrill argues that recent performance does little to diminish the value of hedge funds:
This last point bears some reinforcement, we believe, because “bubbles” occur when investors bid up prices in a relatively short amount of time. As this report points out, the percentage of assets managed by hedge funds has grown rather slowly, they continue to represent less than 1.5% of global “mainstream” assets and their net asset values are based on underlying securities, not a subjective premium like, for example, tech stocks (see related posting).
Comments »Alpha in Final Four tickets?17 February 2008
Turns out that there is now a service that let’s you do just that. Yoonew is a start-up that has created a “free market” for tickets to events like the Final Four and Super Bowl. By bizarre coincidence (or guided by the hand of God), Alpha Male learned about this firm at the O’Reilly Money:Tech conference in New York the day after the Duke/Carolina game . If you thought Steve Sapra’s application of the CAPM to NFL betting was interesting, you’ll like this story. Yoonew has created a “options market” for sports tickets so you don’t have to wait to find out of your team actually makes it to big game. Now you can buy an option on the ticket - to be executed only if your team is successful. Of course, if your team chokes you are out your initial payment. But the risk may be worth it though, since buying a ticket at game time could be many times more expensive that buying the futures contract right now.
Comments »Replicating Hedge Funds: Traditional beta or alternative beta?14 February 2008We are pleased to bring you a guest posting today from Dr. Lars Jaeger of Partners Group. Regular readers and students of hedge fund replication will recall that Dr. Jaeger edited one of the first books covering the topic back in 2003. Since then, he has written a number of papers on hedge fund replication (see related posting) and has spoken at many conferences. He’s also one of the speakers on the programme for Terrapinn’s second Alternative Beta & Hedge Fund Replication conference in London (March 10-12). Hedge Fund Replication and Alternative Beta: Two different ways of looking at replicating hedge funds
Special to AllAboutAlpha.com by: Lars Jaeger, Ph.D., CFA, FRM, Partner, Partners Group The discussion on alpha versus beta in the breakdown of investment returns is as old as the capital asset pricing model which defined these terms some 40 years ago. Today, it has finally reached the hedge fund industry - an area of investing traditionally associated with “pure alpha” or “absolute return”. Investors and researchers alike realize that hedge fund returns are largely composed of betas. However, hedge fund beta is different from traditional beta. While both are the result of exposures to systematic risks in the global capital markets, beta in hedge fund investing can be significantly more complex than traditional beta (and can be often be “hidden in the alpha smokescreen”). We therefore refer to this beta as “alternative beta”, a term that now part of the hedge fund lexicon. In fact, the increased academic and non-academic effort to model and understand hedge fund return sources has also reached Wall Street. The new buzzword: “hedge fund replication”.
Comments »130/30 has “opened up serious questions” for brokers and custodians: report13 February 2008A survey from consultancy Vodia Group backs up previous surveys from Merrill Lynch and AllAboutAlpha.com by finding that roughly 15% of institutional investors currently invest in 130/30 funds. As a result of expected growth, Vodia anticipates major changes in the prime brokerage and custodian businesses. According to the firm’s press release:
Apparently life won’t be all that bad for prime brokers though. According to a chart released by the firm, prime brokerage financing revenues will increase dramatically over the next 4 years - even as financing spreads come under pressure…
Comments »Does the “wisdom of crowds” produce alpha?10 February 2008
One panel that raised a lot of interesting questions about the nature of alpha was a panel discussion on “Collective Money Management”. For the uninitiated “collective money management” refers to networks of investors who pool their ideas together to come up with what is hoped to be the best trades. Call it Facebook meets E*Trade I suppose. Examples include Marketocracy, PredictWallStreet, Zecco, Cake Financial, Socialpicks.com, and Covestor. These web sites were billed in the official programme as being the “antithesis” of the stock market – places where people freely share ideas in the hope that they will benefit by association with the network. But while many emerging open source business models can seem counterintuitive, the idea that investors want to share their ideas isn’t realy counterintuitive or antithetical at all. In fact, it’s in perfect keeping with the spirit of the market. If an investor buys an undervalued stock, it’s actually in his best interests to tell others about his thesis since this will put upward pressure on the stock.
Comments »Why the fountain of youth would unleash a flood of liabilities7 February 2008
Then one day, magician David Copperfield announces that his quest for the fountain of youth has finally yielded some results. He has scientific evidence that the stream running through his Bahamian plantation will allow anyone on Earth life to the age of 100. “Damn that Copperfield!” you exclaim. Now you have to save a lot more for retirement than you had planned. All of a sudden, beating the S&P 500 ain’t looking so hot anymore, eh? You’re now on the hook to support yourself for an extra 15 years. Pension plans face this problem all the time. In fact, a scan of FTSE 100 companies this week reveals that 10% of them had to raise their expectations of longevity this year alone - significantly increasing their future liabilities.
Comments »What do Ikea and maple syrup have in common?31 January 2008
According to Thomson, AP7 CIO Richard Grottheim has just selected what he calls “pure alpha European equity managers” - this, after hiring two ”pure alpha” domestic managers already this year. If these mandates pan out as expected, Grottheim says he will roll out the “pure alpha” strategy to Asia and emerging markets. So what exactly is this “pure alpha” shtick anyway? More than an empty marketing promise, the term is used by AP7 to describe a form of unfunded alpha overlay that uses proceeds from shorts to fund long positions - kind of like the “30/30″ portion of a 130/30 fund. Says Thomson:
Comments »New research on private equity surprises even some of the experts27 January 2008
But both of these contentions have been called into question by a new research report commissioned by the World Economic Forum and released in Davos on Friday. The report was led by Harvard’s VC guru Josh Lerner, was advised by a group including hedge fund demigod David Swensen of Yale and, according to its introduction, represents “an unprecedented endeavour linking active practitioners, leading academics, institutional investors in private equity and other constituents (such as organized labour) and boasts involvement from many parts of the globe.” The full report, “The Global Economic Impact of Private Equity”, is available here. It’s highly comprehensive to say the least and weighs in at 189 pages. But if you don’t have several hours to kill, you can always read the key findings in a press release available here. Lerner told a p | ||||||||||||||||||||||||||||||||||||||||
They say that the market for borrowing stocks (to execute short sales) is one of the last great inefficient corners of the financial industry - where participants can simply back their trucks up to the loading dock and use a pitch fork to shovel the cash inside. 
Last week, while JP Morgan CEO Jamie Dimon was busy 
Special to AllAboutAlpha.com by: Angelo A. Calvello, Ph.D. 
Last week, we told you about a paper that suggested price competition in the mutual fund industry was somewhat less than robust. Rather than lopping all mutual funds into one pot and comparing their fees, the authors of that report examined the fees of individual funds relative to their Morningstar category average. While not as ideal as examining the active management delivered by each fund, this approach loosely categorizes funds by their level of active management (e.g. the small cap growth category has a higher level of active management than the large cap value category).
With its (appropriate) focus on generating returns, the asset management industry tends not to spend inordinate amounts of time on introspection - on the way firms in the industry management and organize themselves. As management consults are fond of saying “form follows function”. That’s consulting-speak for “structure follows strategy”. 
Special to AllAboutAlpha.com by: Keith Black, CFA, CAIA, Associate, Ennis Knupp + Associates
A lot has been written over the past few years about hedge fund/private equity “hybrids” where a so-called “side-pocket” is created to hold a particularly illiquid investment. But while these funds may indeed contain both asset classes, they are long and short in public equities and long-only in private equities. In other words, it is difficult to actually hedge private equity.
Since May 2002, a Hong Kong based enhanced index fund manager has been essentially lending stock to itself to create short positions in its long/short equity fund. The result has been a portfolio architecture that one usually finds only at the largest, most sophisticated institutions.
In March, 
Watson Wyatt consultant Janet Rabovsky passes along 
In a 
We have always argued that actively-managed mutual funds are essentially a marketing package for two fundamentally different formations: a large deposit of beta and a vein of pure alpha. Unable to travel either the peaks and valleys of beta or the undulating topography of pure alpha, mutual fund companies long ago found a neutral territory that seems to have satisfied investors worldwide for over 50 years.
Back in November S&P launched its 
Pensions & Investments 
The Chief Investment Officer of Dutch insurance firm Interpolis 
Boy: You sure gotta climb a lot of steps to get to this Capitol Building here in Washington. But I wonder who that sad little scrap of paper is? 
Much of the focus of this website is institutional (pensions, endowments, portable alpha etc.). But many readers are also financial advisors who realize that many of the ideas adopted by institutions eventually make their way to the world of retail investments. If you are such advisor, there is one online publication to which you should really subscribe: 
Subscribers to our monthly email update “
Several studies over the past few years have suggested that the much heralded “hedge fund alpha” is declining. These studies have examined average hedge fund performance (overall, or funds within a specific strategy). As a result, they have been unable to differentiate between two possible causes of the decline: an increase in the number of unskilled managers who generate negative alpha and a decrease in the number of hot-shots who produce large alphas (essentially, the skew of the hedge fund return distribution). 
In a 
After Duke’s absolutely crushing and embarrassing defeat of North Carolina earlier this month (okay, not quite “
The intersection of finance and technology is getting crowded. Along with information aggregation services and social investing networks, today’s the O’Reilly MoneyTech conference in New York featured celebrity financial bloggers. Barry Ritholtz (
Let’s say you’re saving for retirement and you plan to live to the ripe old age of 85. You save accordingly by socking away a certain amount every year and banking on the market to provide you with a tail wind to help you built just the right sized nest egg. To your delight, your portfolio seems to be beating the S&P 500 year after year. Way to go, fella! 
The 80 billion Swedish krona Sjunde AP7-foden (”AP7″) public pension fund might as well be called the “Alpha-Pure” fund. Last year, the fund made a splash by re-organizing itself along alpha and beta lines and this week, one executive tells Thomson Investment News that the quest for “pure alpha” continues. 
Skeptics often content that private equity (and hedge fund) “locusts” are holding companies for ever-shorter periods of time in an effort to extract value and high-tail it out of an investment before things go south. Some, particularly trade unions, also believe that private equity take-over targets are destined to lose jobs following an acquisition (